Selling Opel key to rebuilding GM

Tuesday, September 1, 2009

Daniel Howes

Selling Opel key to rebuilding GM

General Motors Co. is smaller, less in debt and governed by directors who appear to have a pulse.

It’s on the way to having fewer brands, fewer plants, fewer dealers in North America, fewer employees worldwide and fewer corporate officers at the top of the house. If it’s smart, there will be less arrogance, little unjustified swagger and a whole lot more quiet execution in its bid to rebuild its corporate cred.

What GM isn’t losing in the aftermath of its historic bankruptcy is the global reach it spent the past 15 years extending — in China, in the rest of Asia, in Latin America and across the fast-growing regions of Europe. And it likely won’t lose the footprint, even if it follows through, as expected, with selling a majority stake in its Adam Opel GmbH unit in Germany.

Why? Because the opportunity to peddle Opel, a bicycle company before it began producing cars, represents a chance for GM to offload to new owners the hard assets of plants and people but retain the three elements GM needs most: product development, engineering and the mutual benefit of economies of scale both sides would need to prosper.

"Overall, we still want to sell Opel," a GM executive familiar with the situation in Europe and the thinking in Detroit told me. Retaining ownership of Opel is "a backup" that is being considered even as GM pushes to refine a possible sale to Magna International Inc. of Canada or RHJI, a private equity group based in Belgium.

The bargaining is rife with politics, posturing and preconceptions. Germany is hurtling toward national elections Sept. 27, making Opel and its jobs a political issue for Chancellor Angela Merkel. She backs the Magna option with its Russian ties, partly because labor backs it and partly because private-equity shops are deeply loathed and mistrusted by the chattering classes in politics, labor and the media.

Whatever. By now it’s clear the hot-potato called Opel is as much about wresting control of Opel from the Americans as it is about "saving" jobs. The Germans want control, a chance to right a historic wrong some 75 years or so in the making even if it means alienating Vauxhall, the British sister to Opel, as well as the Belgians, Spaniards and Poles who would no longer have an American buffer between them and the Germans.

GM estimates of a top-to-bottom workout of Opel and its affiliates in Western Europe run well north of $10 billion. That’s money GM does not have. Nor can it justify the expense to its paymasters in the U.S. Treasury, which is why a sale remains more likely than a cobbled-together effort to keep control of a unit that has chafed under Detroit for decades.

What GM can retain — and most likely will, despite efforts by Magna and others — are distribution rights for Chevrolet in Europe and, especially, Russia; access to Opel product development and engineering at its headquarters west of Frankfurt; the possibility to sell selected Opel products in the rich U.S. market.

What GM doesn’t want is for Opel to slip into insolvency, a one-way trip to bankruptcy that could culminate in dismemberment and the loss of precious engineering and development assets to Fiat SpA of Italy, the Russians or the Chinese. GM’s global footprint would be damaged and such German rivals as Volkswagen would be bolstered by one less direct competitor at home.

The bankruptcy of GM was, is and will be a punishing exercise. Jobs lost. Plants closed. Dealers cut. Communities hurt. Retirement expectations dashed for hourly, salary and executives.

But it’s also an opportunity to create a functioning and profitable company from a dysfunctional destroyer of capital, to replicate at home and in Europe GM’s success in developing markets. Selling a majority stake in Opel may be just the move the General needs to keep moving in the right global direction.

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